6 Useful Tips for Software Development Companies on Pricing

February 13, 2015
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This article talks about 6 useful tips on software pricing. Software development companies should keep these in mind before they build and launch new applications or restructure the existing pricing model.

1. Value Pricing

Software price is the main source of revenue for a software development company. Price is a key indicator of the value a software provides. A software development company should price the product depending on how much value it offers. For software, the value is determined by the features offered by the company. The brand also plays a crucial role in creating value as it influences the perception of the company and software.

Let’s look at Shopify. It is a software as a service (SASS) that enables sellers to sell products anywhere in the world. It offers different features for its different packages. We can also say that it creates different value for customers and charges accordingly. Professional package includes features such as fraud analysis tools, gift cards, professional report and abandoned call recovery. These are not available for Basic package holders unlimited package holder provides advanced report builder and real-time carrier shipping, which is not available for professional package holder. Needless to say, Shopify can do it all, but it structures its price based on the value it provides.

Value Pricing

Shopify price plan

However, as a software development company, you have to keep in mind the market condition. If an email service provider decides to start charging, people are most likely to leave that service because people are habituated to use email for free.

2. Multiple Package

It is important to offer your software in multiple packages based on a user’s need. Not everyone has the same need. Let’s look at the example of SAP. They package their ERP in modules and offer companies based on their need. Smaller companies may just need SAP for Accounting, HR and Sales and distribution, large companies may require more. Let’s look what SAP encompasses.

Multiple package

Different modules offered by SAP

All these modules can create value for the company. Smaller companies do not have the need for all modules.

3. Extend or Branch Out

As a software development company, you cannot provide everything at once. You need to learn and evolve your software. Let’s look at Dropbox. They introduced storage services first. Later they found out that a key reason why people use cloud storage is to store photos. So they introduced Carousel, an app for photos. They specialized on what they knew and then extended or branched out to other services where they could use the expertise.

When branching out, software development companies should be careful. The same pricing strategy may not be applicable to all the products. Let’s compare Carousel with Windows Phone. Carousel is an extension of Dropbox’s existing services, whereas Windows Phone OS is a separate software than Windows for a desktop. Microsoft charges a license fee $5 to $30 Windows Phone manufacturers depending on the devices. Microsoft waives this charge for some manufacturers. On the other hand, Android is far more popular than Windows Phone and free (excluding patent charges) for manufactures. The same desktop model is not effective in the mobile and tablet market. That is why, with Windows 10, Microsoft is planning to make the OS free for all devices under a 9-inch display.

Software development companies should look at the competitive condition in the market and consider that when setting a price. 

4. The Power of Nine

Price has a lot to do with the users’ perception. There is a simple but effective way to influence readers. Let’s look at the Microsoft Office’s page and you will start to understand what I am talking about.

The Power of Nine

MS office price plan

The difference between $699 and $700 is that when people see the price, they observe the 6 first and puts the software in 600’s category. $1 creates a $100 effect and influences the buyer to perceive the software cheaper than it actually is.

5. SAAS Model

Providing software as a service allows users to quickly access the full-fledged software at a significantly low cost. A software development company can go for a single model or try out both subscription and one-time payment method. Traditional software used to follow a one-time payment. But now many software are selling on a subscription basis.

Adobe’s Creative Suite used to sell at about $600. Now a user can access the full suite with only $49.99/month. MS Office has both one-time payment and subscription basis. Office 365 is available at $7 to $10 dollar depending on which version a user chooses. MS Office is also available from $140 (student) to $400 (professional) as a one-time purchase. I would say Microsoft’s way is better for users than that of Adobe. Microsoft did not radically change the way a user purchases. It has made both ways available.

Nonetheless, SASS has some other benefits for a software development company. It allows you regularly update your software and reduce piracy. These are the two main reasons why Adobe has a shift from one-time purchase to a monthly subscription.

6. A Free Taste

Try to give a full taste of your software free for a limited time. Majority of the software provides a free trial version of the software. SPSS Statistics will give a 1-month trial to get a feel for the software. So does MS Office 365 and Adobe Creative Cloud. The benefit of this system is that a user gets a feel for the complete software within the trial period. The problem, on the other hand, is that some of this software is so diverse that you cannot grasp the entirety of these within such a short period. A solution to this issue can be you give the software free to a certain extent and then charge for additional features. Dropbox is always free until the user reaches 2GB.  This is also true for other cloud storage service provider. They provide a certain storage for free, makes you grow a habit of keeping things in the cloud and then start charging.

I hope these tips will be helpful for software development companies. The most important thing is to understand users’ need and present the product accordingly. It is also important to get continuous feedback from users and adjust the price accordingly.

Contributor: Mushtahir Aziz Rahman, Business Executive, Nascenia

7 Comments. Leave new

Very well written and informative article. I have a question about the power of nine part, $799 is better than $800 I understand. Is $100 better than $99?

Reply
Mushtahir Aziz Rahman
March 9, 2015 2:04 pm

Thanks. $99 is better than $100. $99 keeps the price in two digits which is better than three digits.

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thank you for sharing this awesome post

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It was really nice to know that there are actually some companies that offer a trial version of the software and that the person can try it out before deciding to buy it. I thought that was only present in applications. But anyway, a friend of mine wants to have a software made in the near future. I guess he should get a sample and try it out before buying as I have heard he intends to invest a considerable amount of money on it.

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I liked how you said that software development companies need to constantly upgrade and develop their software to match the current needs of their clients. As long as I will be informed of the change, I do not mind how they make their upgrades. It is important after all since technology is constantly changing. I will mention this to the boss because he needs a software made for the employees. Though I will be the one in charge of it.

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Suman Samanta
March 31, 2019 9:16 am

I have honestly never read such overwhelmingly good content like this. I agree with your points and your ideas. This info is really great. Thanks.

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